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File Image: IOL

Life insurance industry weathers the Covid-19 storm

By Martin Hesse Time of article published Sep 22, 2020

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The life insurance industry buffered the Covid-19 crisis surprisingly well to the end of June, according to statistics released by the Association for Savings and Investment South Africa (Asisa) this week, and is in a robust position to withstand the economic fallout from the pandemic.

The half-yearly long-term statistics gathered from Asisa members are in accordance with new reporting requirements introduced by the Insurance Act of 2018.

Hennie de Villiers, the deputy chairperson of the Asisa life and risk board committee, says the figures show that the industry remains in “robust financial health and well capitalised to weather the prevailing tough economic environment”.

He says the industry held assets of R3.1 trillion at the end of June this year (up slightly from R3.02 trillion at the end of last year), while liabilities amounted to R2.8 trillion (up from R2.7 trillion at the end of last year). This left the industry with free assets of about R330 billion, which is more than double the reserve required by the new solvency capital requirements.

It paid out R230bn in claims and benefits in the six-month period.

The bulk of individual consumer business is in risk policies (life, dread disease, income protection and disability cover) and savings policies (retirement annuities and endowment policies).

De Villiers says the industry sold 4.6 million individual recurring-premium risk policies in the first six months of this year, and more than 5.4 million policies lapsed. (A policy lapses when you stop paying premiums and your cover ceases.) As a result, the number of risk policies in force declined from 34.6 million at the end of 2019 to 33.8 million at the end of June.

Last year, the industry recorded 8.8 million lapsed individual recurring-premium risk policies (4.4 million, on average, in each six-month period), so the January-to-June figure of 5.4 million represents a significant 23% uptick in lapses.

De Villiers also reports a decline of 3.59% in individual recurring-premium savings policies, from 6.5 million at the end of last year to 6.3 million at the end of June.

Although 282 467 new policies were sold during the six-month period, 364 887 policies were surrendered. (A surrender occurs when you stop paying premiums and withdraw your savings before the maturity date, which invariably results in an early-withdrawal penalty). This is more or less in line with the 713 361 savings policies surrendered last year.

De Villiers says: “When times are tough consumers are less likely to take out new savings policies. At the same time, more policyholders surrender their policies to access their savings due to financial hardship.”

He points out that since financial intermediaries were not considered an essential service during the hard lockdown period, it limited their ability to advise clients. This contributed to the “significant reduction” in new business volumes for the first six months of the year.

Lockdown relief

Life insurance companies assisted policyholders who were in good standing but suddenly unable to pay their monthly premiums due to Covid-19 in various ways.

De Villiers says: “The characteristics of the relief offered differed somewhat between insurers, but in general the client would not be covered for the period he or she was not paying premiums. Some insurers offered limited free cover during that period, on an ex gratia basis. At the end of the payment holiday period, cover would generally be reinstated when the policyholder started to pay premiums again, without having to be medically underwritten. Most insurers did not require the missed premiums to be repaid.”

Relief on endowment and retirement annuity policies involved contribution holidays whereby you could stop contributing for a few months without incurring a penalty.

De Villiers says that, in his experience, the majority of policyholders who were granted premium relief resumed their payments at the end of the premium relief period to ensure that their policies remained in force.

He says life insurers will continue to try to help policyholders who may be struggling financially as a result of the pandemic, but this will be done on a case-by-case basis.

“Policyholders who continue to face financial difficulties should contact their financial adviser or insurer with urgency to discuss potential solutions.”


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